*Sigh* those three words probably don’t surprise you at this point; the “Gender Credit Gap;” yes, it’s real.
We’ve all heard of the gender wage gap (or gender pay gap) by now, but what’s up with our credit scores? In the past, women faced barriers in accessing credit and were even required to have male cosigners or large down payments to get loans.
The issue today is that women tend to be at a disadvantage because of factors that stem from their lower income or difficult access to financial education.
According to a recent report from the Federal Reserve, men have higher credit scores than women. The report also showed that single women tend to have longer credit histories, use more credit, and are more likely to struggle when paying off debt.
What Causes the Gender Credit Gap?
There are three big reasons behind the gender credit gap that we can summarize into engagement, exposure, and opportunity.
The synopsis sounds like this:
- Women don’t engage with their finances as much as men.
- Women don’t expose themselves to credit use as frequently as men.
- Fewer employment opportunities among women make keeping up with credit more difficult.
For details on the why behind these circumstances, keep reading.
We can link a lot of the gender credit gap to financial disengagement. Financial disengagement is when someone pays very little attention to their finances and generally doesn’t show interest in their financial position.
For example, being engaged with your finances would imply monitoring your credit statements, knowing your loan terms, or shopping around for credit cards. Credit Karma found that financial disengagement, generally, is more prevalent among women than men, with 41% of women reporting that they don’t know their credit score compared to 35% of men.
On the matter of credit, “out of sight, out of mind” is particularly dangerous. If you’re not mindful of your credit score, it can easily plummet and not look as pretty by the time you get back to it.
How do we encourage men and women to be more engaged with their finances?
We share accessible and simplified information on how critical financial literacy is. The more educated we are, the better our credit scores can be, and the more opportunities for all of us.
Limited Credit Exposure
According to Credit Karma’s study, nearly a third (31%) of women have some or all of their financial agreements in their partner’s name. The research also shows that women appear to be more hesitant to use credit than men, with only 70% taking out credit cards, compared to 76% of men. There’s a similar gap when it comes to mortgages. These circumstances contribute to the credit gap because they limit women’s credit exposure.
For someone to build credit, they have to prove that they’re responsible with credit. You can’t demonstrate your credit management skills if someone else manages your credit for you. The less exposure one has to credit use, the harder it is to build a hardy credit profile and increase their credit score.
Letting go ownership of your credit use isn’t good for building a solid history. The scariest part about letting go of the reigns is that you’ll leave your partner with little or no credit experience should your relationship end. In many financial instances, you might depend on someone else, but independent credit use is the best way to establish your own credit score.
Employment and Income
The restrictions imposed by the Covid pandemic have caused a slight imbalance between the sexes’ income. 32% of women saw their income decrease from 2020 to 2021 compared to 30% of men. At the same time, 20% of women report being laid off or furloughed, compared to 14% of men.
Credit Karma anticipates the credit score gulf will widen due to the pandemic. With credit being issued before the pandemic and the sudden loss of income, many men and women have unpaid debts they have to handle. A change in income has thrown many people off their game and projected payment plans.
Without income, it’s easy to run into higher balances, missed payments, and higher utilization rates, all impacting your credit score. The circumstances of the Covid pandemic put people, women in particular, in more significant financial turmoil.
Why Does It Matter?
Having a good credit score unlocks opportunities that everyone should have access to. From loan terms to credit cards and even apartment hunting, your credit score will impact your life in a multitude of ways.
Everyone can benefit from having greater exposure to credit and, therefore, a better credit score. A ten-point difference from your credit score to your partner’s can have one of you paying thousands of dollars more in interest—the more money spent on interest, the less money available for life’s luxuries. You deserve to have an equal shot at building credit and long-term financial stability no matter who you are.
When we all have access to the same opportunities, everyone has a better chance of reaching their full potential. There are times in life when you may depend on someone else having a stellar credit score alongside yours. Purchasing a house with someone, taking out a loan with a co-signer, or becoming an authorized user on a credit account can all become a lot easier when both parties have excellent credit scores.
We can close the gender credit gap by sharing useful information and helping each other learn the ins and outs of credit management. Extra is here to help. From offering an easy-to-use debit card that builds credit to sharing the wisdom of the Credit Wizard, hopefully, we can help close the gap or at least bring your attention to it.